Egypt's dollar bonds pessimism overblown: Goldman Sachs and Pictet

CAIRO - 1 February 2024: The pessimism surrounding Egypt's dollar-denominated bonds is deemed exaggerated, according to global investment banks Goldman Sachs and Pictet Asset Management. They anticipate that the country will avoid defaulting on its payments and perform well for investors, as reported by Bloomberg.

 

In January, Egypt's dollar-denominated bonds witnessed a 1.7 percent decrease, marking their worst monthly performance since August.

 

"There is less likelihood of Egypt defaulting on its debt than market estimates," stated Kamakshya Trivedi, Head of Global Foreign Exchange, Interest Rates, and Emerging Markets Strategy Research at Goldman Sachs.

 

Trivedi added that with the expected start of the U.S. Federal Reserve's interest rate cuts this year, the overall global economic conditions would be favorable for lower-rated countries. These countries, which were largely excluded from accessing international debt markets earlier, are now showing positive momentum in their hard currency bonds. Egypt serves as a clear example of this trend.

 

Mary Therese Barton, Chief Investment Officer for Fixed Income at Pictet, mentioned that bond holders could achieve high single-digit returns by exposure to emerging markets like Egypt, which benefits from multi-faceted support.

 

Egypt is required to repay around $3.3 billion worth of dollar-denominated bonds in 2024, with the first installment due in March.

 

While the state holds approximately $35 billion in foreign exchange reserves, most of it is essentially borrowed funds from allies including Saudi Arabia, the UAE, Kuwait, Qatar, and Libya, according to Bloomberg Economics.

 

The extra yield demanded by investors to purchase Egyptian securities instead of U.S. Treasuries was 990 basis points on Wednesday, slightly below the widely recognized threshold of 1,000 basis points as a sign of "distress," as per indicative data from JPMorgan.

 

Barton stated that Pictet, managing assets valued at over $265 billion, rules out any sovereign debt default in emerging markets this year. In addition to Egypt, she clarified that the company supports purchasing bonds from Angola, Nigeria, and Ecuador.